JANUARY/FEBRUARY MARKET REPORT FORECAST 2009
Prior to researching this year’s forecast, we reviewed our last two in 2007 and 2008. In 2007, we looked at the long term fundamentals of the condo market and concluded that economic factors would lead to a doubling in condo values in ten years. We still believe that to be the case! For 2008, we continued to be bullish and forecast rising condo prices and sales. And we were wrong. First, we underestimated the impact of the New City Land Transfer Tax. But more importantly the public began to believe all the negative stories about the economy and ‘now’ is not the time to buy anything including condos. Guess what? People stopped buying and what was once a U.S. Mortgage problem became everyone’s problem.
WHAT TO DO IN 2009?
1. Timing the market never works. Sellers did not realize that the market peaked last January (we told you in April) and only woke up to the fact by October. Buyers think the market will now trend down for at least a year. Our guess is that it will be heading back up by summer. For buyers, having the luxury to choose and negotiate over the right property is more important than bidding on a property in a hot market. The first quarter of the year will represent the best buying opportunities. Sellers need to be educated to aggressively price ‘at market’ from the first day of the listing. Otherwise they will be following this market down with list price reductions that will net them less in the end.
2. Not all condos have been affected to the same degree by price drops. While some detached housing has experienced decreases of over 15% - condos have fared better. High priced units are off by 10%, most of the market has experienced declines of less than 5% and some units are still rising in price! Don’t rely on newspapers for pricing. Now more than ever, you should demand a ‘comparative market analysis’ from a Realtor before making any Offer.
3. This is probably the best market in a decade for people who want to ‘buy up’. Prices at the lower end have held their value. Even if your unit is off by $25,000 from its peak, what you want to upgrade to has probably come down by more than $50,000; meaning that you will need even less of a mortgage than you originally planned.
4. People looking for bargains will find them in the ‘Assignment’ not the Resale market. An Assignment is the right to own a property before it is registered. Many new condos are ready for occupancy but may not be registered for ownership for up to a year. If these buyers don’t move in, they need to sell. There are also buyers who have purchased from plans and are now trying to sell/flip their units even before construction begins. These buyers will be fortunate to recover their deposits. So if you want to buy at two year old prices, there will be some great Assignment opportunities
5. Finally, a number of new condo projects will be cancelled this year. Not just from a lack of buyers but because the banks will insure that there will not be an oversupply of condos by failing to provide construction financing. Unless you are sure that your project will be built, and that prices are under $500 per sq.ft., then we would give a pass on new construction in 2009.
WHAT TO LOOK FOR IN 2009:
1. Condo sales will be higher in 2009. At the outset, sales will start lower than 2008 but by year end, sales will be 5% higher.
2. Big units will continue to experience modest price declines because ‘baby boomers’ are frozen into inaction. Prices for units under 800 sq.ft. will continue to appreciate (our guess is 3%) as Generations X and Y exhibit a ‘live for today’ mentality.
3. The Condo Rental Market will grow significantly. While more investors will be renting out their units, there are also more people wanting to rent condo units and this will keep rental prices relatively stable.